Birla telcos slapped Rs 4,000 crore tax notice

Apr 6, 2013, 04.41AM ISTTNN[ Piyush Pandey ]

MUMBAI: The income tax department has slapped a tax notice of nearly Rs 4,000 crore on two Aditya Birla Group companies - Idea Cellular and Aditya Birla Telecom (ABTL) - for capital gains tax arising out of the demerger of the telecommunications business in 2009. The move is likely to be challenged by the Birla group companies as they deny any wrongdoing. Shares of Idea Cellular, India's third-largest cellular carrier by revenue, went down by nearly 2.8% to close at Rs 103 in a weak Mumbai market on Friday.

An Idea Cellular spokesperson confirmed that the telco had received tax notices from the I-T department.

"Idea Cellular and its subsidiary have received tax assessment orders on Sunday, the last day of the financial year. The demands are inconsistent with established tax laws and past precedents. The company believes the demands are unjustified and based on an erroneous interpretation of the current tax laws and the facts of the case," the Idea Cellular spokesperson told TOI.

He said that Idea Cellular has always maintained the highest standards of tax compliance and holds that these demands are misplaced and no tax is applicable. The company is evaluating all options, including challenging the demand at the appropriate forums.

Idea Cellular has been issued a tax demand order of Rs 1,500 crore on business income arising out of the transfer of telecom licences, assets & liabilities from Aditya Birla Telecom as part of the demerger. ABTL, which is a subsidiary of Idea Cellular, has been issued a tax demand of Rs 2,400 crore. These tax demands mainly pertain to a scheme of arrangement, specifically approved by the high court in December 2009 and January 2010, under Section 391 to 394 of the Companies Act, 1956.

The income tax department has treated the transfer of licences, assets & liabilities as a 'slump sale' on which capital gains arose, according to sources in the know. However, the company believes that the transaction involves a scheme of restructuring between a wholly owned subsidiary and a parent company with the sole objective of administrative consolidation of a telecom licence of one service area in the parent company, without any financial transaction or transfer of funds. So, no tax liability accrues.

Idea may well become the second telecom firm to fight it out with the I-T department in a court after British telecom major Vodafone. The I-T department claims that Vodafone owes tax amounting to Rs 14,200 crore with interest, for a 2007 deal with Hutchinson.

The I-T department has slapped notices on many companies over alleged gains made via transfers within group. Oil major Shell India was issued a notice of Rs 5,000 crore over an inter-group transfer of shares recently.